The Truth Shall Set You Free

Numbers Can Lie – Only If You Want Them To

Good sound business decisions require a reliance on the facts. I may be stating the obvious here but I am amazed at just how the truth gets overlooked for one reason or another. Unfortunately, in the absence of good solid data growers and processors may only be left with gut reactions to guide them.

In talking with growers over the years I have found that operating within a comfort zone is much preferable to changing practices, procedures or operations that may not be “optimum” as a means to achieve financial success and continued growth.

 

Anecdotal Evidence

Years ago I had a grower, one of our premier AgStar customers, talk to me about the ongoing debate that he was having with his father on the topic of equipment “maintenance vs replacement”.  Buy new or keep fixing?

He went about setting up each of his large (tractors, trucks, implements, harvesters, etc.) iron assets as cost centers. Every belt, alternator, nut, bolt, along with each hour the shop folks spent fixing that unit was applied to the enterprise called “JD4840 #1” or other such rolling stock designations.

At the end of the first year of diligently recording each and every expenditure to individual equipment items he sat down with his father and had a discussion about whether or not it was better to buy new or keep maintaining the old and fully depreciated capital items. Since the majority of new purchases came with an extended warranty most repairs would be covered entirely by the dealer. So the primary cost of new vs old was in the depreciation of those units.

Oh? So who was right about costs? Suffice to say that the patriarch was astounded at the money that they were investing in aging equipment. I saw a lot more shiny new tractors the next time I stopped by the farm.

Kareem Abdul-Jabbar and Coach Riley

Years ago I remember reading in Laker Coach Pat Riley’s book, “Showtime”, that in an effort to continuously get more out of his super stars he would have game recap private chats with each team member about what they needed to improve in their game.

Sitting down with Kareem Abdul Jabbar typically resulted in some frustration on the part of each of them. He would actually get some push back when he would suggest that the famous center needed to get back sooner on defense, push the ball up more for fast breaks, make a few more passes, and guard the paint more or a multitude of other such suggestions for improvement.

Finally, the big man let his coach know that the conversations weren’t useful because he didn’t have any facts to back up his position. This was a time when basketball maintained the usual stats of shots taken, makes, rebounds (defense and offence) , free throws (attempts and makes), and points per game. Beyond that there were few stats on other important indicators of performance. Riley then hired an assistant whose only job it was to record more events and crunch the numbers in advance of his “chats”.

You Can’t Handle The Truth!

As companies grow the need for good accurate information is critical for those owners and executives far removed from the day-to-day events.  Action driven by intuition can result in success only if you are truly a person who has been blessed with incredible luck. In time that good fortune will run out, however, and one is best served by simply flipping a coin in the decision making process. Good luck with that…..

The Missing Link in Ag Tech

ERP Systems Key to Unlocking Value

Over 30 years ago my partner developed one of the first production agriculture management systems, AgStar, that revolutionized the way that growers operated their businesses. A bold statement? Maybe. But when you consider that paper, pencil and ledger books (Big Chief Tablet and a #2 Pencil) were the only financial tools available to farmers at the time it was, truly, a revolution.

Our application combined the functions of tax (cash basis), crop, field, accrual and budgetary accounting into a single sophisticated, yet easy-to-use, system. AgStar addressed the challenges of simultaneously tracking field, crop or enterprise, double entry recordkeeping, overlapping crop years, large payrolls, equipment costing, and more that provided growers with the means to make better financial decisions overall.

Sounds like a sales pitch, eh? Not really. Because if you asked our customers if they could run their businesses without AgStar they would answer, “Not easily.” Many are still using the software today.

The Years Passing By Like a High Line Pole

Fast forward 30 years and where are we on the availability of an ERP (Enterprise Resource Planning) system for farmers today? Certainly, there are many crop recordkeeping systems available on the market like AgCode, Agrian, Conservis, Tiger Jill, Farmworks, and more that address the need for tracking agronomic activities (pesticide, nutrient, labor, water, cultivation, harvest, etc.) on the farm. There are scouting systems, precision ag tools, GIS, aerial imagery, water management, weather and remote sensing systems that really don’t do a good job of integrating with the financial aspects of the business.

Show Me the Money!

What is a management tool without the ability to look at the dollars and cents as well as the agronomics? In a world of “measure to manage” the only metric that is really important is cost. Remember, most growers don’t have the ability to impact the top lines of their businesses, with the exception of yields. Where is the point of diminishing returns for crop inputs? Where does that last dollar invested in a field result in an increase in profits, not just revenues?

There may be a few companies that have decided to address this void in the market. They have approached the opportunity as “loosely integrated” with double entry accounting systems. The tighter the link to the functions of Accounts Payable, Accounts Receivable, General Ledger, Payroll and Cost Accounting the more useful these tools will become. Simply plugging those numbers into the system is not an efficient means of cost management. It needs to come from the accounting system directly.

Imagine if Oracle, SAP or Microsoft Dynamics, who promote themselves as ERP solutions, did not closely tie to the basic accounting modules? It may be time to bring in the accountants along with the agronomists and have them architect the next generation of farm management tools.  

Selling Technology to the Agri-Food Market

Some of you reading this will be looking for that silver bullet or magic potion that will turn growers and processors into instant buyers of new and innovative technologies. Sorry. Those sure-shot-easy-solutions just don’t exist.

However, the following are some suggestions and insights that might help entrepreneurs, sales and marketing people in their quest to optimize that somewhat broken value chain through the adoption of their new wares – hard and soft.

Prove Your Worth

You might be asking yourself why there isn’t a beaten and well-worn path to your door after you have articulated the value of your offerings. Or, in some cases, the ROI hasn’t actually been proven but you are wondering why your prospective customers just don’t “get it” intuitively? It is not their fault.

The best answer is that we, collectively, need more independent third party analytics as to the cost of doing business the same old way. The places to go for that kind of objective research are our institutions of higher learning. More attention to the issues of cost versus value and less to the “how” of the technology means that those folks conducting the studies should be cost accountants and economists. Academics with those skills just don’t seem to be available.

We need to find researchers who can get into the weeds and show growers and processors just how much your products and services can contribute to their bottom lines. And why continuing with antiquated practices is costing them a lot of money.

Compliance Hammer

Look to the government to help out with your sales. It is not your fault that there is increasing oversight on the part of regulators. You’re just the people with solutions to problems. This is referred to as regulatory compliance.

Pesticide reporting has driven the success of many ag tech companies over the years. Now due to high levels of Nitrogen in the groundwater in some areas of the country those same companies are positioned to help growers with new fertilizer reporting requirements.

In the case of water usage the accuracy of measuring both surface and groundwater has been severely lacking. We simply do not know how much water is being applied to a crop if it is coming out of a ditch or sent through a sprinkler system. While the measurements are better with modern irrigation methods such as micro and drip it is still a simple and inaccurate calculation of time and volume.

Let's not forget that commercial compliance is also a force that has driven buying decisions. WalMart Sustainability has had an impact on their suppliers and suppliers suppliers that requires much better documentation about the how, what, where, when, how much and more concerning our food. Who is going to tell WalMart "no"?

Technology solves most, if not all, of the problems of collecting and documenting the required data for government agencies. The IRS, EPA, State and Federal agencies, they are all demanding more and more information about the business practices employed throughout the agri-food chain. It does more than simply provide a means to comply, however, it can be used run the business of growing and processing food more efficiently.

 

Should Do and Gotta Do

All of us have a list of things that we should do. Our actions are primarily driven by a need to survive in business and if there is time and energy available after that we strive for continuous improvement. Compliance will always win out over value as a primary sales driver.

Food Safety and Modernization Act – Impact on Agri-Food

Fizzma Compliance Mandate

The FSMA (fizzma?) regulations that were enacted over 5 years ago may only now be considered to be very “real” in terms of enforcement and compliance. These things take time and in all fairness many of the relatively new business requirements have been metered into the fabric of the industry over the course of several years.

Here is what is stated on the U.S. Food and Drug Administration (FDA) website concerning the new mandates for the agri-food chain.

“The FDA Food Safety Modernization Act (FSMA), the most sweeping reform of our food safety laws in more than 70 years, was signed into law by President Obama on January 4, 2011. It aims to ensure the U.S. food supply is safe by shifting the focus from responding to contamination to preventing it.”

That last line is interesting in that prior to 2011 it was only necessary to “respond” to a contamination incident and not “prevent” it. Reactive vs proactive. The latter seems to be a much better approach to managing our food supply system.

Document, Document, Document

The gist of the new FSMA mandates are in the recording of information about food and ingredients. First stage processors, those manufacturers who receive product directly from growers, not only need to document all processes and procedures inside the plant but also what took place outside their four walls.

Pre harvest records, for example, the application of pesticides (there are others) as well as harvest information that details the “chain of custody” from field to plant are going to be a requirement and not optional. Harvest crews, harvesters, haulers, receiving stations, plant gate entry and a lot more data are all necessary in telling the story about where, what, who, how and when of a food item before it gets turned into a can of peas, bottle of wine or package of frozen French fries.

Traceability is Trace AND Track

Recalls have traditionally focused on tracking and not tracing a product through the ag supply chain. These are two different exercises. “Track” is, essentially, looking at a specific “production lot” that may have been contaminated and determining where it went in the chain forward from problem origination to consumer. “Trace” is going backwards to the source of the problem in the first place and looking at the complete history of that product. The latter may provide a clearer picture of the problem origination.

Without both of these capabilities one really does not have a good handle on the causes of any food safety issues.

Compliance Forces Supply to Value Chain

What may occur here is that processors will require more information from growers so that they can do a better job of being proactive in their food safety initiatives. They will require more and more of the pre-harvest and post-harvest information as detailed in the FSMA guidelines.

The result may be that this data can be used in a positive way to improve processing yields for food manufacturers while at the same time enhance crop yields and quality for their suppliers. You can't optimize what you don't measure. Or, something like that.

Has the Agri-Food Tech Bubble Burst?

Over the course of the last several years we have seen an uptick in the capital investment into new technologies in the agri-food sector. According to AgFunder News last year venture capital firms placed $4.6 B in bets on startups and existing companies seeking additional funding for growth. In the first half of 2016 ($1.75 B) that surge has gone the other way with a 20% decrease over that of the previous year.

 

Broken Systems and Hockey Stick Sales Projections

To be fair VC investments declined some 14% across all market sectors. It may have been that agri-food-tech was a popular play last year due to the fact that the potential for optimization through the integration of technologies is incredibly large and more money was directed to that market segment than others. Or the drop in the number of dollars directed to this business category the fact that some of these tech startups have not gotten the traction that was originally portrayed in their overly aggressive business plans. Either way it appears that funding has been “tempered” but has not completely dried up.

It’s not hot and not cold but certainly is a little tepid. Let’s face it the drone hoopla has died down considerably and how many mobile farm recordkeeping systems can the market actually support?

What Goes Up Will Come Down

We have seen bubbles popped over the years. Prior to the tech stock crash of 2000 companies like Deere were convinced that they needed to invest heavily in technology. They also saw the need to move technology management out from under different business disciplines (the CFO directed IT) and create a C-level position in the organization to direct their corporate strategies for technology. The Chief Technology Officer was born and then several years later the box in that org chart was eliminated.

Too Much of a Good Thing

So what does this mean for agri-food technology growth in the future? The opportunity for transforming the industry is still the same. Nothing has changed. The inefficiencies still exist or, better put, the potential for efficiency gains are substantial when, and it WILL happen,  a thoroughly optimized value chain is ultimately realized all the way from seed to fork.

More investment may not make the revolution gain momentum anyway. The time will come when capital will be required for growth in the industry but until the adoption rate increases and demand exceeds supply we should be content with slow and steady. Otherwise we will be faced with a crowded market all vying for a limited number of dollars for technology tools from ag and food companies.

 

Data Quality in the Agri-Food Chain

The aggregation of any data for purposes of analytics requires some level of consistency between disparate and unique systems or devices. One cannot expect to dump rotten vegetables into a cauldron of boiling water and serve gourmet soup from that mess.

How Good or Bad Is It?

On a scale of 1 to 10 just how good is all of that data that is being generated throughout the agri food chain? 1? Probably not. Certainly not anywhere near 10. I would argue that it is poor, at best, but improving rapidly.

Without standardization, normalization, calibration and validation the industry will not achieve the level of accuracy that is required for good and consistent actionable analytics when the data is aggregated.

A Rose by Any Other Name

The ag chemical industry has been working on the problem of not simply coming up with the global names for products but also digitizing the rules associated with the use of those products. It seems that they may be inching closer to solutions for these issues and in some cases the government regulatory agencies are moving in a similar direction towards that goal. One farmers’ “Roundup” might be anothers’ “round up”. This is a good start.

Straight from the Horse’s Mouth

The recording of events by hand will always be necessary in the business of growing and processing foods. However, the automation of that data collection or recording is increasing at an incredible rate due to the proliferation of IoT (Internet of Things) and data digitization.

Everything from irrigation, to weather, to seeding, to yields, to fertilizers, to pesticides, to invoices, to, well, just about anything that happens on the farm or at the plant is available from some computer somewhere in a raw and unfiltered form.

 

Maytag Effect

The big data folks at IBM or Google will tell you that there is a “scrubbing” process that inherently has the intelligence to recognize that “Roundup” is the same as “round up”.  These applications also can determine the source of the data and appropriately modify the values in an effort to normalize the data. In short, the data can be cleaned through a process.

Industry Associations and Certification

Having worked in the processing tomato industry for many years I recognize that industry associations, similar to the Processing Tomato Advisory Board, which is made up of both grower and processor representatives, can help in data standardization. Every load of tomatoes goes through a standard receiving and grading process and the resultant data can be aggregated and analyzed to the benefit everyone in the industry – farmer and packer alike. When there is the will to do so and an understanding of the value of data these goals can be achieved.

Other associations could do the same. Think of the wealth in data value if the American Farm Bureau took an active role in establishing a true “data dictionary” and assisted in the establishment of standardization, normalization, calibration and validation protocols for the farm.

The Path to Enlightenment

How the Market Achieves a Technological Big Bang

Surf’s Up

This might sound more like some kind of Zen moment where the heavens open and we begin to embrace the new and improved methods of producing, processing and even delivering our food. There are many ag and food supply chain folks out there who will find that this, in fact, does happen and their worlds will be shaken to the core. For those who are at the forefront of this movement you might just get a chance to ride that wave that us old timers have been waiting on for many, many years.

 

There’s a New Deal a Comin’

The leaders in the revolution will be the younger generation of agribusiness professionals who are the trusted advisors of the growers. The agronomists that succeed will be “techno business management agronomists” who understand how all of the pieces of the puzzle come together to deliver solutions – not data or information or suggested courses of action but the best answers to the questions as to “what do I do right now” balancing science and economics to perfection.

Transition to Services

Ag retailers, hawkers of chemicals and fertilizers, will need to change what they do and how they conduct their businesses. The profits that they generate from the volume sales of materials will be surpassed by their services business. They must be prepared to give chemicals and nutrients away at cost in order to convince growers that their own interests are the optimization and profitability of their clients’ businesses. At this point there will no longer be a conflict of interest in the relationship between farmer and crop advisor/salesman.

Money! It’s a Gas

When they are no longer order takers for these products and become the experts in minimizing the use of these inputs while simultaneously maximizing crop outputs the corner will be rounded on the road to success for both parties. And swept up in this revolution will be the technologists who have figured out that the way to a grower’s pocketbook is through his advisor.

Aligning the Stars, Planets, Moon and Earth

There is no one company out there who has EVERYTHING UNDER THE SUN in the way of the “total solution”. No one is even close. Well, maybe Trimble has a start towards the lofty goal of assembling the building blocks on the ag side of the equation. But who is thinking about the other major component of the optimized chain? Food processor and packer. If they are out there then they are keeping a low profile.

 Next: Vertically integrated food and ag companies vs value chains.